Why has the Rand depreciated? 

The Rand has always been erratic but recently it has depreciated so much that it’s caused concern among economists, policymakers and investors.  

Here Harry Scherzer, CEO at Future Forex, unpacks why the Rand has lost value and what, if anything, can be done about it.  

Why has the rand depreciated?  

Normally the Rand is sensitive to global risks, such as pandemics and war (e.g. Ukraine/Russia), however, this time around it appears to have been affected by what’s happening internally within South Africa.  

‘Recently the rand has weakened even relative to other emerging currencies which suggests that it’s the events within our borders that have created this 

 depreciation. And nobody will be too shocked to hear that those events have included load shedding and the general sentiment that the South African government is making decisions that are subpar and are detrimental to the local economy.  

‘But this wasn’t enough to push the Rand to a new low of 19.52 to 1, it was the accusation by the US ambassador that South Africa sold arms to the Russian army, which really put the nail in the coffin,’ says Scherzer.

Reducing exposure to the Rand 

One way to reduce exposure to the Rand is to buy currencies that generally do well and provide some kind of protection, such as the US Dollar, Euros, and the British Pound. You can do this through creating an account with a reputable, regulated forex provider or bank.  

FNB, for instance, allows you to open a USD account in its ‘Global Account’ section. It also allows you to buy GBP and Euros. You can also get earnings from abroad paid directly into your Global Account.  

‘These developed currencies are far less likely to deteriorate compared to emerging market currency pairings. If your investment goal is to minimise currency risk, and you want certainty against volatility in the rand, then hedging against the rand will help you to achieve this. 

‘Taking a hedged position, ensures the best overall returns with the lowest associated risk. Future Forex are able to assist you with setting up local foreign currency call accounts denominated in USD, GBP and Euro. Furthermore, we can assist with the necessary forex conversions and regulatory approvals required,’ says Scherzer.  

Other ways of reducing exposure to the rand include investing in a diverse range of assets such as bonds and equity funds that have global exposure.  

Other currencies to consider 

The US dollar, GBP, and the Euro are typically seen as “safe haven” currencies because they generally offer stability compared to other currencies. Others to consider that may not have as much volatility as emerging currencies include the Australian Dollar, the Canadian Dollar, and the Japanese Yen.  

However, if you’re happy to take a punt there are other currencies you could invest in that may offer you more return, but there are risks involved.  

It’s important to do your research before committing to lesser-known and potentially more volatile currencies. ‘Other currencies would tend to be more speculative and often influenced by investor sentiment towards the underlying country’s economic and political statuses. If you choose to move away from the three major currencies, then there needs to be good economic data and political stability to back the decision,’ explains Scherzer.